Boost Your Bar’s Bottom Line: Strategic Pricing & Profit Optimization for Bar Owners

Hello and welcome to the Bar Business Podcast , where we help bar owners increase profits , attract loyal guests and simplify operations so you can avoid burnout and finally enjoy your life outside of your bar . I'm your host , chris Schneider , the Bar Business Coach .

Before we get started , a quick thank you to our sponsors , spot On , who provide a great modern POS solution for the bar and restaurant industry , and Starfish , who use AI to turn your books into actual steps to increase profits . So today we're talking about pricing strategy .

We've spent a lot of time on the podcast discussing costs and cost control and controlling the controllables and all that sort of good stuff , but today we're going to talk about pricing strategy and top line revenue , and not necessarily things you can do to improve it .

We'll talk on that some , but more what we're going to discuss is theory and how to think through . You know . Should I increase volume here ? Should I increase prices ? What are the things you need to take into account ?

And mostly , what we're going to actually focus on is the relationship between volume and price , because that relationship is what determines your top line revenue . So , when we think about growing a business , what is growth ? Let's start with that question . What is growth ?

Well , growth , when most people use it , means one of two things We've increased our revenue or we've increased our profits . Now , normally , especially in small business , we want those to go hand in hand . But when you think about the broader business landscape , growth in revenue does not always equal growth in profits .

Growth in profits does not always equal growth in revenue , and so you can have growth as a business and actually make less money . And a good example of a company that has huge growth but doesn't actually make any money , or didn't make any money for a long time , would be like Amazon or any tech company . These guys are reimbursing , reinvesting their revenue .

They are constantly expanding their business , reaching more people , moving more units , having more subscribers . That doesn't actually mean that they made more profit .

You know , if you look at a lot of tech companies , especially in the early years , they made little to no money , if not lost a bunch of money , but still had growth on the top line Obviously Amazon or Facebook or Instagram when it was starting out , all have a lot of outside money from investors and they did not have a real reason to need profit because they

could raise additional capital to continue their growth . But for bars , especially independent bar owners , you need the profit because the profit is how you live .

So in bars , when we think growth , while growth in a general business sense can just be an increase of revenue and negative profit , growth that we're looking for in the bar business tends to be growth of revenue . That equals growth of profits and again , that's because the profits are what we take home .

Now one of the ways that we can do this is a price increase , and we'll get into talking about price increases and how those affect this scenario . But one of the reasons why I'm having this conversation this week is because we're about a month away from the end of the year and , at least for me . I always adjusted prices January 1st .

It was a natural break point in people's minds it was new year , new prices . Customers , for whatever reason , in my experience , are a little bit psychologically less likely to freak out if you raise prices at the beginning of the year . Yeah , they'll still freak out , but for whatever reason , psychologically new year , new prices .

They seem to be a little bit more elastic when it comes to their ability to pay more money . Now , the other reason why I want to have this conversation now is because the end of the year is a time to reflect on your prior year and forecast your future year .

So when you're looking at things that went well last year , on things that you want to capitalize on last year , you know , obviously , I think we all want to grow revenue in the future and not just cut costs as a way to grow our bottom line . So this is a great time to reflect and to start to lay the foundation for what you're going to do in 2025

. Now to go through this conversation right . So we're talking about how to grow top line growth and increase revenue and , as I mentioned , revenue is not necessarily the same as profit , but when we increase revenue , we almost always increase profit in the bar business . So let's start by talking about revenue . What is revenue ?

So I think we all know this , but revenue is the money that comes in the door . Whatever you charge people , that is your revenue . Now , revenue in and of itself is the consequence of two elements . There are two things that play into revenue the volume of items you sell and what you charge for those items .

So volume and price Volume , how much you sell , price , what you charge . Now , volume and price when we think about the way those two elements affect our revenue , they can have different relationships . So , for instance , a lot of times when we see we can raise prices on an item and then we sell less of it , so price goes up , volume goes down .

At the same time , if we have a special on something , so we're decreasing the price on that item , we see volume go up . So frequently these are inverse relationships , where we increase or decrease price and we see volume move in the opposite direction .

Now , a lot of that comes down , though , to customer perception , and so this is a story I've told on the podcast before , but it bears repeating because it is , to me , the best example of customer perception of price .

One of the bars I had and this was years ago , and I forget the exact number , so we'll just be close but I want to say I charged $12 for a bucket of beer , and I heard from my regulars all the time they would either be very happy about a $12 bucket of beer or complain greatly about a $12 bucket .

Well , monday , tuesday and Wednesday , most of my competitors in the local area were charging $10 for a bucket of beer , so I was $2 more expensive . So , monday , tuesday and Wednesday what did I see ? Well , my price was higher than my competitors , so my volume was lower than my competitors .

Now , conversely , come Friday , saturday , thursday , friday , saturday , all those places that were charging $10 for a bucket Monday , tuesday , wednesday were now charging $15 for a bucket . I , rather than play this price up and down volume game , charge $12 all the time .

And so Thursday , friday , saturday , I saw my volume and beer buckets go up , because my price , at still at $12 , was now $3 cheaper than the market . So , in a way , even though I never changed the price of an item in my bar , not once , it was $12 every day of the week . It's what I like to call an everyday special .

It's a good deal all the time , not a great deal , that's only some of the time . And so , if we look at my price versus volume relationship , in the first part of the week my price was higher than the competition , which caused me to have a lower volume of sales , but on every sale I did make more money .

We were selling the same products , I was getting $2 more for those products than they were Now on the weekend . The opposite is true . I had a higher volume because I had a lower price than the competition and they were making more money on their buckets of beer on the weekend .

Now I never had enough information from my competitors to run all the data and really understand if I was winning or losing in that scenario , in that battle between price and volume across multiple bars in the market . But customer perception is the factor that's going to change that volume . People think they're getting a really good deal , they tend to buy more .

If people think they're getting not as great of a deal , they tend to buy less . But price and volume are inextricably linked . Now , beyond the relationship between price and volume , when it dictates revenue , right , so revenue is price plus volume . When it dictates revenue , right , so revenue is price plus volume .

When we think about our pricing and how we're approaching our pricing , the theory and the philosophy of pricing , another relationship we need to look at is the relationship of revenue and cost , because we know volume and price are what can drive our revenue . But what does revenue cost us ? Because if our profit margin across the entire bar is , say , 15% .

An increase in revenue of $100 does not necessarily come with a 15% increase in cost . And that's because our costs fall into three essentially different categories . And a lot of times in the restaurant business or the bar business we're going to talk about controllable and non-controllable costs , and that's a good way to look at it .

But what matters from a theory and philosophy end is fixed or variable or semi-variable costs . So most of the time when we talk about non-controllable costs , we're talking about things like rent insurance , things that managers can't really control today , and those are our fixed costs .

Those are the costs that are the same whether we open the door and sell a beer or we leave the door locked and closed . We have those costs . Now our controllable costs are going to be divided up between variable and semi-variable costs . Add it up between variable and semi variable costs .

So variable cost is where we have a direct correlation between sales volume and the cost , and a semi variable cost is where we have a partially direct correlation . A portion of that expense is fixed and a portion of that expense will vary based upon our volume . So let me give you a few examples here .

So a great example of variable cost is , say , the cost for a bottle of beer . And let's say a bottle of beer costs a dollar and I sell it for $4 , I have a 25% beer cost . Every bottle of beer I sell will cost a dollar . There's no way that I can avoid that cost . That is a variable cost that always exists with the sale of a beer .

So , regardless of anything else , anytime I sell a beer . So if I increase the volume of beer I sell or I increase the price of the beer , however , I'm driving revenue for that beer . Every time I sell it it's going to cost me a period . End of story . Now a semi-variable cost .

I like to think of them a lot of times as stair-step costs , and the perfect example here is labor . So say you have five table sections , that you know that one of your servers can handle five tables or 10 tables I'm just using this as an example but a server can handle five tables .

Whether a server is handling one table or three tables which would be that change in volume that's going to determine our revenue I still need one server , but as soon as I hit table 6 , now I need two servers . So rather than my cost increasing across all tables .

I pay the same amount for 0 table served or 5 table served , but then when I hit table 6 , my cost goes up and it's going to cost me the same amount to serve 6 tables to 10 tables and then table 11 , my cost will go up again . Now why is it important to understand this relationship between revenue and cost ?

Because when we look at revenue and cost , you realize that efficiency is one of the keys to increasing revenue the most . Now , why is that true ? Because if I only have the cost , if I only have beer cost increasing because I can move another beer across the bar , I can sell another beer . That costs me only the beer cost .

If I don't need additional labor , if I don't need changes to my facility , if I don't need additional tech , if I don't need changes to my facility , if I don't need additional tech , if I don't need anything else , but I can sell one more beer using labor I already have from product I already have , starting the cooler I already have .

All I've done is increase revenue and I've increased revenue . Where that $4 beer yeah , $4 in revenue my only cost additional cost associated with that $4 in revenue is a dollar in beer cost . So of that $4 in revenue , my only additional cost associated with that $4 in revenue is $1 in beer cost . So of that $4 , I'm putting $3 directly to the bottom line .

Oftentimes this cost-revenue relationship can help you identify if I do this option , I get 75% directly to the bottom line , whereas if I do a different option maybe I only get 30% directly to the bottom line . So it can help you realize where you can laser focus yourself in increasing volume to positively impact your revenue .

So revenue goes up , cost will always go up , but in some instances cost goes up less , depending on how we've generated that additional revenue , which way we've increased our volume to do that . Now let's talk about the relationship between price and cost , or price and revenue to an extent , because we know with revenue we have our two factors volume and price .

So volume , we explain , costs go up when volume goes up , but costs go up less than your increase in volume . So you get a higher margin on the bottom line . What happens when price goes up ? Because price has no impact on cost .

So instead of charging $4 for a beer that cost me a dollar , say I charge $5 for a beer that cost me a dollar that cost me a dollar . Say I charge $5 for a beer that cost me a dollar . Well , that dollar , because I haven't increased my volume , I haven't changed anything about my cost structure that dollar will pretty much fall directly to the bottom line .

So we have no increase . When we increase price , we have no corresponding increase in variable or semi-variable costs . As a matter of fact , if anything , we have a decrease in semi-variable costs on a percentage basis , because that additional revenue will offset those costs . Greater . Right , if we're charging $4 for a beer that costs $1 , we have a 25% beer cost .

Charge $5 for a beer that costs $1 , we have a 20% beer cost . So increasing price is the easiest way to bring money straight to the bottom line . But we have to be careful here , because if we increase price too much , beyond the elasticity of a market , beyond what people want to pay for an item , we're not going to sell it .

And then it doesn't matter what we're charging for it , because our volume is zero , so our revenue is zero , or our volume is way down , so our revenue is lower than it was before we raised the price .

So if you're following all of this , I know this is kind of crazy talking about volume and price and revenue and all these different ways to think , but essentially so . Essentially , this all comes down to one thing Growing revenue is the art , and it really is an art , not a science .

The science is how we run the data , but the art is the psychology and how you sell , price increases and how you get people to purchase more . The real answer to increasing your top line , to increasing your bottom line in turn , is to perfectly find the balance between price and volume . When you can find that balance , you're going to win .

Now , interestingly , if we look at the last couple years , one thing that you hear from a lot of folks in the industry is you know , I'm making more money , my guest check average is way up , but my volume is down Now .

On one hand , that's concerning , because , well , if volume continues to go down forever , eventually you don't make money , hey , and you're out of business .

On the other hand , though , that's kind of a good thing , because here's what's going on right we're making more revenue and , in turn , more profit on less guests , so we're making more money and working less In business in general would be a win , win Right . We often don't look at it that way in our industry . But that is a win .

Win , but that is a win-win . And so if you can get more revenue from fewer transactions that produce more profit , great . Now the question becomes how do we increase the volume so that we can get even more revenue at those new higher margins that really supercharge our profit ? So it's all about this balancing act .

Now , when we talk the balance between price and volume to dictate your revenue , price is always easier to control than volume Price . You can go to your POS system right now , increase the price on every drink you sell by 50 cents and it's done .

Literally , you can do it in a matter of minutes , depending upon the system you're using and you've controlled your price . And that means a lot of folks , especially ones that are new to the industry , are not thinking things through all the way will just jump on a price increase as a way to improve their bottom line , and it should , right .

But if your volume goes down at some point , it doesn't . So you can increase prices to where you're in line with the market , and that's where we go back to this bucket of beer example . Right , my competitors sometimes were $10 , sometimes were $15 . I was $12 .

Every day it had positive and negative impacts on the volume I sold based on what my competitors were charging . So the overall market is going to put some price control on you when you offer commodity goods . And if you think about the bar business , what do we sell ? That's a commodity .

Well , all our cocktails essentially are commodity , unless you're a very high-end cocktail bar with specialty cocktails and highly trained bartenders that are doing special things . Because a Jack and Coke is a Jack and Coke is a Jack and Coke . And , yeah , I might have a little bit of a better pour , I might use a little less mixer , it may taste stronger .

There are little differentiating factors in there but a Jack and Coke is basically a commodity . A Miller Lite's absolutely a commodity . Tastes the same out of any bottle anywhere you buy in the world , anytime , so that is a commodity product . So , on commodity products , we can only charge so much before we hit a market price value that we can't go above .

Now where we can increase price a lot easier is with our products that are less of a commodity . So , like I mentioned , if you're a very high-end cocktail bar and you're doing specialty cocktails that other people in your market aren't doing and there's a demand for them .

You can charge basically anything you want because there's no market price dictating what you charge . Now , at some point you're going to charge more than the market will bear , but you have more elasticity in your market because what you're selling is less of a commodity .

The other place where almost every bar has a chance to play outside of this commodity space with their pricing is on food , and so if you have better food than most people , you can charge a better price than most people , even though better food does not necessarily cost more on your food cost end .

So you can strategically use food as a great way to increase volume and charge a higher price , because food is less of a commodity product . Now , obviously , if you're selling frozen mozzarella sticks from Cisco straight out of the bag into the fryer , that's a obviously .

If you're selling frozen mozzarella sticks from Cisco straight out of the bag into the fryer , that's a commodity . But if you're doing something like taking cheese , cutting it up , hand breading it and frying it , that's less of a commodity . So your ability to move price is somewhat based on how much of your item is a commodity .

Now , like I said , price control is easy , volume control not so much . So increasing volume is always going to require more than a simple decision like price and volume comes largely through perceived value . Are you giving people a good deal and do they perceive what you're selling as a good deal ?

Now the number one tool to use is menu engineering , because what is menu engineering at the end of the day , it's a matrix of contribution , margin and popularity , which we could call price and folia . Menu engineering is a tool that allows you to map this . Look at each individual item you have , whether it's food or liquor , allows you to map this .

Look at each individual item you have , whether it's food or liquor , whichever part of your menu or your offerings you're doing menu engineering with , and really try to mathematically determine where that best fit is between price and volume .

So menu engineering is a great tool to maximize your revenue , because we're looking at the two components of revenue price and volume . Now here are a few things to look out for whenever you're looking at driving your revenue high .

One is your product mix , because , like I just said , if you're more on the commodity end , you have less price elasticity than if you have more unique products . If , regardless of the product , you shoot too high above market prices , things are not going to sell , your volume will not increase , and so you're going to have trouble driving revenue that way .

Now there are two scenarios that can be very could look good on the surface , but you need to always check them , and that's when you have a volume increase and a profit decrease . Or you have a price increase and a volume decrease . So how do we have a volume increase and a profit decrease ? Well , that's when we're shifting .

We're changing what people purchase . That's why it's always important to look at our P-Mix and what we're selling .

But when our pricing and our volume strategy changes what people buy and encourages them to sub out an item where we were selling lower volume items that we made more money on , and now they're switching to higher volume items that we make less money on , and so we've moved them from buying low volume to high volume , but we've moved them from buying high profit

items to low profit items . Now , oftentimes , volume will make up for that profit differential . However , sometimes it doesn't .

So whenever you're increasing your volume on your more commodity type items , make sure it's not taking away from the volume on your more specialty items , the items that you're making better profit on , because you can hurt yourself without the numbers actually looking like you're hurting yourself .

Now the second thing to look out for here is price increase and volume decrease . At some point you charge so much you sell way less . Now , obviously , like I said , if you can sell 100 beers for $4 , that's $400 in revenue .

If you can sell 80 beers for $5 , that is $400 worth of revenue , and 80 beers at $5 will make you more profit than 100 beers at $4 . So you're winning there . But that's because the price increased and the volume decreased went hand in hand , and so we're still having the same revenue on the top line , but we have a larger bottom line .

But if you increase your price too much , your volume will decrease to the point that you're actually making less profit . So it's very important to monitor that . So just to recap this off for you guys , real quick revenue two things going to your revenue price and volume .

Those are your two levers you can pull to change your revenue and it is an art to balance those two . You always need to balance the volume you're selling and the price you're charging , and there are different mathematical things that happen in your books and with your profits , depending upon your price and your volume .

The other thing to remember here , like the example I just used of raise a dollar , raise the price per beer by a dollar and lose 20% volume , but it's the same revenue . You can have the cheapest thing or the most expensive and make the same money . So we're worried about profit .

At the end of the day , revenue increased revenue does not always mean increased profit . Decreased revenue and increased profit can go hand in hand . It's weird , but it can happen . So make sure you have a consistent strategy when it comes to your pricing model and how you're trying to drive your volume in order to increase your top line revenue .

Now , before we go today , we do have a listener question . If you've been listening to the show for a while and you would like to ask a listener question , go down to the show notes . It says text the show . You can click right there . It comes to me . I will read it on the next episode . You can also send comments about the show to me through there .

Just so you know , though , I can't respond , so that's why we read these on the show . The question I got this week was about keg boxes . It says I am about to purchase my draft keg boxes . I've chosen two true three-door keg boxes . I need info and advice on tap towers .

I'd like to do six taps on both sides , or possibly eight on both sides , for a total of 12 to 16 .

Now I'm not sure here , from the way this is written full disclosure , because I can't respond to these text messages he's buying two true three doors and then he says he'd like to do six taps on both sides , and so I'm not sure if he's talking about six taps per box or 12 , you know , on both sides I'm not sure what he's asking .

Let's bring this down here . So a three-door keg box is generally set up to have four kegs in it . At a three-door box you normally have four kegs . At a three-door box you normally have four kegs . Now you can put six in there pretty easily and do a mix of like three half barrels and three , sixth or quarter barrels Works really well .

That's what I did for years . I used the half barrels for my larger beers . You know your Miller Lite , bud Light , coors Light , budweiser , what have you . And then the six barrels , quarter barrels . Those were my specialty beers , whether it was Bell's Founders , local , you know what have you there , how many taps you can actually do .

You got to kind of plan this out . So adding turning a three-door keg box that has four taps into a three-door keg with six taps , it's not difficult . Like I said , you can still use half barrels One of the things that you have to keep in mind .

Like there's a lot of pressure sometimes to have more taps , but when you add more taps you go from half barrels to having to do six barrels , and six barrels per ounce are going to cost you way more for the beer . So your cost is going to be higher .

Now , on craft , you can charge a higher price , but you definitely do not want to be doing your higher volume beers , your Miller Lite , coors Light or anything like that , in a six barrel . You're going to change it all the time . It's just going to be annoying and you're going to spend it all the time .

It's just going to be annoying and you're going to spend way too much money . So I personally would never recommend going over six taps on a three-door keg box , because that gives you three , quarter or six barrels , three half barrels . It's a nice mix . In theory I think you could probably do . You could probably do eight or 10 , six or quarter barrels .

I've never tried it , but it's . It's , I'm sure , theoretically plausible and something you could do . I'm just not sure why you would , given the cost associated with six barrels versus the cost associated with half barrels for beers , that you're going to

run through a lot . The other thing here too , is utilize your draft tax . Even if you're going to buy craft beer and all those things Budweiser , miller , lite , your Miller guys , your Bud guys they're going to have draft tax . Use them , talk to them , see what they think has worked , see what they'll do for you .

A lot of times they will set this all up for you if you ask nicely . The last thing I will say on this topic I like kickboxes . I know a lot of people like the long draw systems . I like kickboxes .

They're easier to play with , they're easier to change the number of taps you have , they're easier to work on and they're easier to get your draft text to do all the work for you . So I do think kickboxes in this case is a great pull .

And I think if when he says six taps on both sides , we mean each keg box would have six taps total , so it would have two towers on each box , three taps per tower , I think that's a phenomenal idea and the way to go .

I think if you start getting to eight so four taps on each tower you're getting a little excessive and it's really potentially going to cut into your profits because your cost for a six barrel far exceeds your cost for a half barrel when you look at beer cost per ounce . That about wraps it up for today .

If you enjoyed today's insights , make sure you like per ounce .